Oil futures gain on expectations of inventory decline

U.S. oil prices rose to a one-month high Tuesday as traders anticipated domestic storage data would show greater demand for crude.

Oil for January delivery gained $1.17, or 1.2%, to end at $98.51 a barrel on the New York Mercantile Exchange. Brent crude, the global benchmark, fell one cent to $109.38 a barrel on the ICE Futures Europe exchange, dragged lower by a report that Libyan exports soon could return to the market.

Analysts and brokers said traders were buying--or closing out bets that prices would fall--in the belief that data due late Tuesday and early Wednesday would show a decline in the amount of U.S. crude in storage for a second week in a row, a positive sign for demand. The American Petroleum Institute, an industry trade group, is expected to release the results of its weekly inventory survey late Tuesday afternoon, followed by the more closely watched survey by the U.S. Energy Information Administration Wednesday morning.

"There seems to be concern with regard to tomorrow's EIA report, they're looking for a draw" on inventories, said Stephen Schork, editor of industry publication The Schork Report.

Analysts surveyed by The Wall Street Journal expect a drawdown on U.S. oil inventories of 2.5 million barrels for the week ended Dec. 6.

Analysts said some of the move in the U.S. contract, West Texas Intermediate, was driven by a popular trade betting on its price difference with global Brent. The gap, which has been volatile this year, doubled during the month of November and has contracted by about 25% in December. The gap has narrowed as TransCanada Corp. began loading oil into a new pipeline that is expected to ease a crude glut in Oklahoma and bring more oil to Texas refineries.

"We're seeing the great unwind in the Brent-WTI spread," said Phil Flynn, an analyst at Price Futures Group in Chicago. "People playing the spread are closing out."

Also supporting the market was a move by the European Commission to remove import duties on jet fuel from all foreign countries including the U.S. Under an earlier version of the proposal, duties were only to be lifted for certain Middle Eastern countries and India.

"This will benefit U.S. refineries first and foremost," Austria-based consultancy JBC Energy said in a note. "With the import duty removed, export economics are set to improve overnight and U.S. exports to the EU are almost certain to further increase next year."

Gasoline and diesel futures both rose. January reformulated gasoline blendstock, or RBOB, finished up 0.6% to $2.6829 a gallon. January diesel ended up 0.2% at $3.0173 a gallon.